FTX Bankruptcy Probe Is Now Being Pushed By Judge

Key Points:

• Judge Dorsey limits the costs and duration of the FTX bankruptcy probe to avoid disruption to ongoing Chapter 11 proceedings.
• FTX, facing collapse in 2022 amid fraud allegations, sees its founder convicted.

In a recent development concerning the FTX bankruptcy probe, US Bankruptcy Judge John Dorsey has taken measures to restrict the cost and duration of a new outside investigation.

Judge Sets Limits on FTX Bankruptcy Probe to Safeguard Proceedings

Read more: List Of Notable Sam Bankman-Fried’s Witnesses: Ex‐Girlfriend, Parents, And More

According to Bloomberg, the federal judge emphasized that the ongoing insolvency proceedings of the FTX bankruptcy probe should not be unduly disrupted by a potentially extensive and costly probe.

The decision comes in response to a federal appeals court order from Philadelphia, instructing the appointment of an examiner for the Chapter 11 case. However, Judge Dorsey, supporting arguments from FTX and its creditors’ lawyers, asserted that the FTX bankruptcy probe should be concise and limited in scope to prevent unnecessary delays and expenses.

The Office of the US Trustee, advocating for an open-ended approach, faced resistance from Judge Dorsey, who expressed concerns about uncontrolled costs that might not yield significant new findings. He suggested a collaborative effort among attorneys representing the company, creditors, and the US Trustee to formulate a formal proposal for the examiner’s appointment in the coming weeks.

FTX, which faced collapse in 2022 amid allegations of misusing customers’ digital assets, has been under scrutiny since. Founder Sam Bankman-Fried resigned and was subsequently convicted of orchestrating a massive fraud. The restructuring process, overseen by advisers after FTX entered bankruptcy, has involved extensive investigations by the company and creditors into the circumstances leading to its downfall.

FTX Restructuring Faces Resistance as CEO and Creditors Advocate for Efficient Examination Process

Judge Dorsey specified that the examiner should review internal and external investigations into FTX, including those by regulators and prosecutors. The FTX bankruptcy probe is expected to conclude within 45 days, culminating in a comprehensive report summarizing the findings.

The appointment of an examiner was previously reported on January 19, following a ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in favor of the US Trustee’s argument for the need for an examiner in the FTX case. The company’s replacement CEO, John Ray III, and the unsecured creditors’ committee initially opposed the appointment but later recommended restrictions on the examination process in a letter filed on January 24.

Meanwhile, in a related development, FTX sister firm Alameda Research dropped its lawsuit against Grayscale Investments following the latter’s conversion of its flagship trust product into an exchange-traded fund (ETF).